<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-51907 and
333-51907-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 24, 1998)
[LOGO]
$3,100,000,000
U S WEST CAPITAL FUNDING, INC.
$500,000,000 6 1/8% NOTES DUE JULY 15, 2002
$500,000,000 6 1/4% NOTES DUE JULY 15, 2005
$600,000,000 6 3/8% NOTES DUE JULY 15, 2008
$1,500,000,000 6 7/8% DEBENTURES DUE JULY 15, 2028
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
U S WEST, INC.
------------------
Interest on the 6 1/8% Notes due July 15, 2002 (the "2002 Notes"), the
6 1/4% Notes due July 15, 2005 (the "2005 Notes") and the 6 3/8% Notes due July
15, 2008 (the "2008 Notes" and, together with the 2002 Notes and the 2005 Notes,
the "Notes") is payable semiannually in arrears on January 15 and July 15 of
each year, commencing January 15, 1999. The 2002 Notes will mature on July 15,
2002. The 2005 Notes will mature on July 15, 2005. The 2008 Notes will mature on
July 15, 2008. See "Description of Notes and Debentures--Notes."
Interest on the 6 7/8% Debentures due July 15, 2028 (the "Debentures") is
payable semiannually in arrears on January 15 and July 15 of each year,
commencing January 15, 1999. The Debentures will mature on July 15, 2028. See
"Description of Notes and Debentures--Debentures."
Each series of Notes and Debentures will be redeemable at the option of U S
WEST Capital Funding, Inc. ("Capital Funding"), in whole at any time or in part
from time to time, at a redemption price equal to the greater of (i) 100% of
their principal amount and (ii) the sum of the present values of the principal
amount and the remaining scheduled payments of interest thereon, in each case
discounted from their respective scheduled payment dates to the redemption date
on a semiannual basis at the Treasury Rate (as defined herein) plus 10 basis
points in the case of the 2002 Notes, 15 basis points in the case of the 2005
Notes, 20 basis points in the case of the 2008 Notes and 25 basis points in the
case of the Debentures, plus in either case, accrued interest thereon to the
date of redemption. See "Description of Notes and Debentures--Optional
Redemption."
(CONTINUED ON PAGE S-2)
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING
PUBLIC(1) DISCOUNT(2)
<S> <C> <C>
Per 2002 Note................................................. 99.89% .55%
Total......................................................... $499,450,000 $2,750,000
Per 2005 Note................................................. 99.743% .625%
Total......................................................... $498,715,000 $3,125,000
Per 2008 Note................................................. 99.352% .65%
Total......................................................... $596,112,000 $3,900,000
Per Debenture................................................. 99.617% .875%
Total......................................................... $1,494,255,000 $13,125,000
<CAPTION>
PROCEEDS TO
CAPITAL FUNDING(3)
<S> <C>
Per 2002 Note................................................. 99.34%
Total......................................................... $496,700,000
Per 2005 Note................................................. 99.118%
Total......................................................... $495,590,000
Per 2008 Note................................................. 98.702%
Total......................................................... $592,212,000
Per Debenture................................................. 98.742%
Total......................................................... $1,481,130,000
</TABLE>
(1) Plus accrued interest, if any, from June 29, 1998.
(2) Capital Funding and U S WEST have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deduction of expenses payable by Capital Funding estimated at
$1,270,000.
----------------------------------
The Notes and the Debentures are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, and
subject to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the Notes and the Debentures will be made through the book-
entry facilities of The Depository Trust Company against payment therefor in
immediately available funds on or about June 29, 1998.
--------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
LEHMAN BROTHERS
MORGAN STANLEY DEAN
WITTER
--------------------------
The date of this Prospectus Supplement is June 24, 1998.
<PAGE>
(CONTINUED FROM COVER PAGE)
On June 12, 1998, old U S WEST, Inc. (renamed "MediaOne Group, Inc." and
referred to in this Prospectus Supplement as "Old U S WEST") consummated a
transaction whereby it was separated into two independent companies (the
"Separation"). Old U S WEST conducted its businesses through two groups, the U S
WEST Communications Group (the "Communications Group") and the U S WEST Media
Group (the "Media Group"). Pursuant to the Separation, Old U S WEST (i)
contributed the businesses of the Communications Group and the domestic
directories business of the Media Group ("Dex") (collectively the "U S WEST
Businesses") to USW-C, Inc. (renamed "U S WEST, Inc."and referred to in this
Prospectus Supplement as "U S WEST") and (ii) redeemed each outstanding share of
Communications Group Common Stock ("Communications Stock") for one share of
Common Stock of U S WEST ("U S WEST Common Stock") and distributed $850 million
in value of U S WEST Common Stock (the "Dex Dividend") to holders of Media Group
Common Stock ("Media Stock") in connection with the alignment of Dex with U S
WEST (the "Dex Alignment"). In connection with the Separation, U S WEST
refinanced approximately $4.4 billion of Old U S WEST debt, including $3.9
billion of debt (the "Dex Indebtedness") in connection with the Dex Alignment,
through the issuance of short-term indebtedness (the "Refinancing"). As a result
of the Separation, U S WEST became an independent company conducting the
businesses of the Communications Group and Dex, and MediaOne Group, Inc.
continues as an independent company conducting the businesses of the Media Group
other than Dex. The Separation was approved by the holders of Communications
Stock and Media Stock at Old U S WEST's Annual Meeting held on June 4, 1998. As
used herein, references to "U S WEST" refer to the U S WEST Businesses prior to
Separation and to U S WEST after the Separation.
The Notes and the Debentures are unsecured obligations of Capital Funding
and rank equally with all other unsecured and unsubordinated indebtedness of
Capital Funding. The Notes and the Debentures are unconditionally guaranteed
(the "Guarantees") as to the payment of principal and interest by U S WEST.
The 2002 Notes, the 2005 Notes, the 2008 Notes and the Debentures will be
issued in the form of one or more global securities (the "Global Securities")
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Global Securities will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants (which may include Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System, and Citibank, N.A., as
operator of Cedel Bank, societe anonyme). Except in the limited circumstances
described herein, Notes and Debentures in definitive form will not be issued.
See "Description of Notes and Debentures--Book-Entry System."
--------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND THE
DEBENTURES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES
AND DEBENTURES TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
--------------------------
THE FOLLOWING INFORMATION CONCERNING U S WEST, CAPITAL FUNDING, THE NOTES,
THE DEBENTURES AND THE GUARANTEES SUPPLEMENTS, AND SHOULD BE READ IN CONJUNCTION
WITH, THE INFORMATION CONTAINED IN THE ACCOMPANYING PROSPECTUS. CAPITALIZED
TERMS USED BUT NOT DEFINED IN THIS PROSPECTUS SUPPLEMENT HAVE THE SAME MEANINGS
AS IN THE ACCOMPANYING PROSPECTUS.
SOME OF THE INFORMATION PRESENTED HEREIN OR INCORPORATED BY REFERENCE
CONSTITUTES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. ALTHOUGH U S WEST AND CAPITAL FUNDING
BELIEVE THAT THEIR EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE
BOUNDS OF THEIR KNOWLEDGE OF THEIR BUSINESSES AND OPERATIONS, THERE CAN BE NO
ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM THEIR
EXPECTATIONS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM
EXPECTATIONS INCLUDE: (I) GREATER THAN ANTICIPATED COMPETITION FROM NEW ENTRANTS
INTO THE LOCAL EXCHANGE, INTRALATA TOLL, WIRELESS, DATA AND DIRECTORIES MARKETS;
(II) CHANGES IN DEMAND FOR U S WEST'S PRODUCTS AND SERVICES, INCLUDING OPTIONAL
CUSTOM CALLING FEATURES; (III) HIGHER THAN ANTICIPATED EMPLOYEE LEVELS, CAPITAL
EXPENDITURES AND OPERATING EXPENSES (SUCH AS COSTS ASSOCIATED WITH YEAR 2000
REMEDIATION); (IV) THE LOSS OF SIGNIFICANT CUSTOMERS; (V) PENDING REGULATORY
ACTIONS IN STATE JURISDICTIONS; (VI) REGULATORY CHANGES AFFECTING THE
TELECOMMUNICATIONS INDUSTRY, INCLUDING CHANGES THAT COULD HAVE AN IMPACT ON THE
COMPETITIVE ENVIRONMENT IN THE LOCAL EXCHANGE MARKET; (VII) A CHANGE IN ECONOMIC
CONDITIONS IN THE VARIOUS MARKETS SERVED BY U S WEST'S OPERATIONS; (VIII)
GREATER THAN ANTICIPATED COMPETITIVE ACTIVITY REQUIRING NEW PRICING FOR
SERVICES; (IX) HIGHER THAN ANTICIPATED START-UP COSTS ASSOCIATED WITH NEW
BUSINESS OPPORTUNITIES; (X) DELAYS IN U S WEST'S ABILITY TO BEGIN OFFERING
INTERLATA LONG-DISTANCE SERVICES; AND (XI) DELAYS IN THE DEVELOPMENT OF
ANTICIPATED TECHNOLOGIES, OR THE FAILURE OF SUCH TECHNOLOGIES TO PERFORM
ACCORDING TO EXPECTATIONS.
S-2
<PAGE>
U S WEST, INC.
U S WEST is a diversified communications company providing services
principally to customers in a 14-state mountain and western region of the United
States, which is comprised of the states of Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota,
Utah, Washington and Wyoming (collectively, the "U S WEST Region"). U S WEST has
operations in four principal areas: (i) telecommunications and related services;
(ii) wireless services; (iii) high-speed data and Internet services; and (iv)
directory services. The major component of U S WEST is U S WEST Communications,
Inc. ("U S WEST Communications"), which provides communications service to more
than 25 million residential and business customers in the U S WEST Region. U S
WEST has one class of common stock, par value $.01 per share.
COMPETITIVE STRATEGY
U S WEST has four areas of strategic focus: (i) service excellence and
improved productivity; (ii) differentiation of services through integration of
products and features as well as customer service and billing; (iii) revenue
growth through new business development and new product offerings, including
data initiatives; and (iv) use of strategic partnerships and alliances to
advance business objectives.
U S WEST's competitive strategy addresses both the advantages and challenges
inherent in one of the fastest growing but least populated regions of the
country. In recent years, the U S WEST Region, with seven of the ten fastest
growing states in the United States, has experienced rapid growth. At the same
time, the U S WEST Region is one of the least densely populated regions of the
country. Though it comprises over forty percent of the land mass of the
contiguous 48 states, it has just over ten percent of the population. This low
population density, along with the fact that most of the growth continues to
occur outside of the top five Metropolitan Statistical Areas, makes the U S WEST
Region less attractive to facilities-based competitors, such as competitive
local exchange carriers ("CLECs") and competitive access providers ("CAPs"),
than the regions of the other regional bell operating companies ("RBOCs").
Additionally, competitors are inclined to target high value customers and
therefore focus their efforts on other regions, notwithstanding the U S WEST
Region's rapid growth. However, lack of population density also creates
challenges. The vast geography of the U S WEST Region adds considerably to
investment and maintenance costs, making the provision of ubiquitous service
comparatively expensive. To capitalize on these advantages and manage the
challenges, U S WEST has adopted the following specific and mutually reinforcing
strategies.
PROVIDE SUPERIOR SERVICE TO CUSTOMERS. Management believes that U S WEST is
entering the competitive arena from a position of strength. U S WEST
Communications has one hundred years of experience in managing increasingly
complex networks and delivering complex bundled services to millions of
customers. It has the ability to provide telecommunications services to mass
markets and the advantage of long-term relationships with its customers. To
continue to capitalize on these strengths in a competitive environment, U S WEST
must continue to provide competitive, quality service. To that end, U S WEST
Communications has accelerated its investment in service quality even in the
face of rapid and sustained growth. The results of this investment have become
evident. Orders for primary basic service held more than 30 days totaled 601 at
year-end 1997, 864 at year-end 1996, and 1,887 at year-end 1995. This
improvement has occurred in spite of a substantial increase in service order
activity over the last two years. U S WEST intends to continue its service
improvement efforts, and to retain its customers by providing superior service.
ENHANCE NETWORK CAPACITY AND CAPABILITY. U S WEST intends to deliver the
products and services its customers want. U S WEST Communications currently is
utilizing a flexible network architecture as it upgrades and expands its
infrastructure. A key example of this effort is the deployment of "U S WEST
Network 21" in major metropolitan areas. Targeted deployment of this
leading-edge bi-directional SONET ring architecture offers unprecedented
survivability, reliability and flexibility for high-capacity services.
Deployment is complete in Denver, Phoenix, Seattle, Minneapolis/St. Paul,
Portland, Salt Lake City and
S-3
<PAGE>
Omaha, and is underway in other key cities. A benefit of Network 21 is the size
of the rings. U S WEST's competitors usually measure coverage in blocks,
targeting core downtown locations. The geographic coverage of Network 21 is
measured in hundreds of square miles and connects users across vast metropolitan
areas. Taking advantage of capabilities like Network 21 and other network
improvements, U S WEST seeks to keep in place an infrastructure that will enable
it to satisfy the needs of customers into the future.
BUILD CUSTOMER LOYALTY, EXPAND PORTFOLIO OF PRODUCTS AND SERVICES. U S WEST
is focused on positioning itself as the premier service provider for customers
who want a comprehensive, affordable solution to their communications needs. U S
WEST is taking steps to better understand and segment customers, comprehend
their wants and needs, develop specialized packages of communications products
and services for specific customer segments, deliver exceptional value and
provide full-service support. The Dex Alignment will provide U S WEST with an
important new component in its integrated service offerings and an enhanced
opportunity to market its brand.
Customer loyalty hinges on giving customers choice, quality, convenience and
value in the products and services they choose. U S WEST is responding to
customer needs with numerous new products and services, including:
- "Custom Choice"--a value-priced package of products, including Call
Waiting, Caller ID, Three-Way Calling, and a number of other value-added
services. This special offer has bolstered the penetration level of these
value-added services and significantly increased the average buy-up rate
per customer.
- "Home Receptionist" and "Business Receptionist"--all-in-one communications
systems that use screen-based telephone units to combine key value-added
services, including Caller ID, Call Waiting Deluxe and Voice Messaging.
- "Message Send"--an innovative product feature traditionally available only
to business customers, has been incorporated as a standard feature that
enables any Voice Messaging customer-- residential or business--to send
voice messages to one another, individually or in groups.
- "Single Number Service"--a service that enables a business with multiple
locations to list a single telephone number for customers to call and
routes those calls to the business location closest to the caller.
- "Call Waiting ID"--a service that combines Caller ID and Call Waiting.
Call Waiting ID identifies the name and number of the callers that come in
while the user is on the phone with another caller.
One key strategic initiative of U S WEST is the development of a premier
data capability. U S WEST's data division, U S WEST !NTERPRISE Networking
Services ("!NTERPRISE"), is expanding its current large business focus with new
intranet (private data networks) applications and is also beginning to enter the
small business and consumer markets. !NTERPRISE's strategy is built around
developing an Internet Protocol(IP)-centric network, which will mirror the
traditional voice network and support a wide array of differentiated
network-based applications and solutions. Building on the growth of core data
network services to large businesses, !NTERPRISE now has the opportunity to
support extranet and internet extensions to those private networks.
To continue meeting the needs of the large business segment on a nationwide
basis, U S WEST has entered into a number of strategic relationships. U S WEST
expects these relationships will allow !NTERPRISE to achieve national scale
quickly with increased Frame Relay and ATM nodes and access to fiber backbones.
To target the estimated 900,000 small businesses located within U S WEST's
region, !NTERPRISE is offering applications including network integration
services, Internet services, web hosting and e-commerce. In entering the
consumer market, !NTERPRISE will continue to focus on providing high-speed
Internet access to U S WEST's existing customers' homes, including through its
MegaBit xDSL offering and U S WEST.net Internet access.
S-4
<PAGE>
U S WEST is also building a long-distance division that will primarily focus
on providing long-distance services between local access transport areas
("LATAs"), with an emphasis on calls that originate within the U S WEST Region.
This division, U S WEST Long Distance, Inc., will package its offerings with U S
WEST's existing products and services. Based on Federal Communications
Commission ("FCC") calling traffic analysis, about 13 percent of the nation's
long-distance traffic originates within the U S WEST Region, and approximately
40 percent of this traffic both originates and terminates within the U S WEST
Region. Recent market data indicates that the interLATA long-distance market
within the U S WEST Region currently amounts to approximately $10 billion, or
approximately $6 billion net of access charges. U S WEST intends to begin
offering interLATA long-distance services in the U S WEST Region pending
successful resolution of litigation pertaining to the constitutionality of
certain provisions of the Telecommunications Act of 1996 (the
"Telecommunications Act") and other regulatory proceedings. U S WEST currently
offers limited out-of-region long-distance services. The objective of the
long-distance division is to become the second largest long-distance provider
within the U S WEST Region in its first four years of operations.
ENSURE A FAIR COMPETITIVE ENVIRONMENT. U S WEST must represent the
interests of its investors, creditors and customers as the FCC and public
utility commissions ("PUCs") implement the policies embodied in the
Telecommunications Act. Three important rule-makings by the FCC impact every
aspect of the local exchange business: interconnection, universal service and
access charge reform. Though the full business impacts of these rules are not
yet known, U S WEST has moved swiftly and aggressively to challenge selected
portions of the FCC's rules, including provisions related to interconnection and
interLATA long-distance services in an effort to ensure a fair competitive
environment.
BUSINESS
TELECOMMUNICATIONS AND RELATED SERVICES
U S WEST provides telecommunications services to more than 25 million
residential, business and carrier customers in the U S WEST Region. U S WEST
serves approximately 80% of the population of the U S WEST Region and
approximately 40% of its geographic area. The principal types of
telecommunications services offered by U S WEST are: (i) local exchange
services, (ii) exchange access services, and (iii) intraLATA long-distance
network services.
Local exchange services provide lines from telephone exchange offices to
customers' premises for the origination and termination of telecommunications
services within local exchange service territories as defined by PUCs. These
services include basic local exchange services provided through the regular
switched network, dedicated private line facilities for voice and special
services, such as transport of data, radio, and video services, switching
services for customers' internal communications through facilities owned by U S
WEST, services for data transport that include managing and configuring special
service networks, and dedicated low- and high-capacity public or private digital
networks. Other local exchange revenue is derived from intercept and directory
assistance, public telephones and various custom features such as Caller ID,
Call Waiting, Call Return and 3-Way Calling.
U S WEST provides exchange access services by connecting the equipment and
facilities of its customers with the communications networks of interexchange
carriers ("IXCs"), wireless providers and other local exchange carriers
("LECs"), including CLECs. These connections are provided by linking these
carriers and customers through the public switched network of U S WEST or
through dedicated private lines furnished by U S WEST.
U S WEST provides intraLATA long-distance services within the U S WEST
Region. These services include intraLATA service beyond the local calling area,
Wide Area Telecommunications Service or "800" services for customers with highly
concentrated demand, and special services, such as transport of data, radio and
video. U S WEST intends to begin offering interLATA long-distance services in
the U S WEST Region pending resolution of litigation pertaining to the
constitutionality of certain provisions of the
S-5
<PAGE>
Telecommunications Act and other regulatory proceedings. U S WEST currently
offers limited out-of-region long-distance services.
U S WEST also provides other telecommunications products and services,
including customer premises equipment ("CPE") and certain other communications
services to business customers and governmental agencies.
WIRELESS SERVICES
U S WEST holds 10 MHz licenses to provide personal communications service
("PCS") in 53 markets in the U S WEST Region. These licenses, which cover
approximately 20 million POPs (I.E., potential customers), were purchased in an
FCC auction held in January 1997. In December 1997, U S WEST purchased
additional licenses for a majority of the Seattle market, which cover an
additional 4 million POPs. U S WEST is constructing networks using these
licenses utilizing digital code division multiple access ("CDMA") technology. U
S WEST launched wireless PCS services in Denver, Fort Collins, Greeley, Colorado
Springs, Portland, Salem and Vancouver in 1997, Phoenix and Tucson in early
1998, and expects to launch services in two other major markets in 1998. These
wireless services, which are being marketed under the "Access 2 Advanced PCS
Service" brand, enable customers to use the same number for their mobile phone
as for their home or business phone.
HIGH-SPEED DATA AND INTERNET SERVICES
U S WEST offers high-speed data and Internet services to customers inside
and outside the U S WEST Region. Through !NTERPRISE, U S WEST provides
high-speed data communications and network services, including frame relay
service, Transparent LAN service, ATM Cell Relay Service, network integration
solutions and other data-related services to business customers both inside and
outside of the U S WEST Region. In 1997, U S WEST introduced U S WEST Megabit
Services, a high-speed internet access service, and U S WEST.net, a standard
internet access service, in selected markets and expects to launch these
services in additional markets in 1998.
To continue to develop its data services business, U S WEST recently entered
into strategic relationships with national providers of fiber backbone services
which are expected to provide !NTERPRISE with access to nationwide fiber
capacity on a variable cost basis. U S WEST expects that !NTERPRISE, through
other existing relationships, will achieve national scale quickly with increased
Frame Relay and ATM nodes. U S WEST has also forged strategic alliances to
complete its national, next-generation data networks.
DIRECTORY SERVICES
U S WEST, through Dex, publishes approximately 320 White and Yellow Pages
directories in the U S WEST Region. Dex's business scope includes all facets of
directory-related publishing services such as market identification, analysis
and planning, advertising and sales, customer service, directory design,
printing and distribution, billing and collection, and product service
promotion. Dex's customers include businesses that purchase advertising in its
directories and other related products, and consumers who use directories and
other advertising and information services. Dex also provides directory
publishing services to other telephone companies on a contract basis and
electronic directory services. Dex is expanding its directories business onto
the Internet by marketing innovative and interactive listings and advertising,
primarily through existing sales channels throughout the U S WEST Region.
CAPITAL EXPENDITURES
U S WEST incurred capital expenditures of approximately $2.7 billion in 1997
and expects to incur approximately $2.6 billion in 1998. The 1997 capital
expenditures were substantially devoted to the continued modernization of
telephone plant, to improve customer service, to accommodate additional line
capability in several states and to enter the wireless business.
S-6
<PAGE>
COMPETITION
U S WEST faces competition in the local exchange business, exchange access
and intraLATA long-distance markets, primarily from IXCs, CLECs, and CAPs. CLECs
and CAPs compete with U S WEST by providing customers with network services that
connect to carrier facilities or other business locations within a serving LATA.
IXCs compete with U S WEST by providing intraLATA long-distance services. Such
competition is eroding U S WEST Communications' market share of intraLATA
long-distance services, including Wide Area Telephone Service and "800"
services. IXCs are competing in this area by offering lower prices and packaging
these services on an intraLATA and interLATA basis.
The Telecommunications Act has altered the competitive landscape of the
telecommunications industry by permitting competition among local telephone
companies, long-distance companies and cable companies. As a result, it is
expected that additional competitors will be introduced into U S WEST's markets
who will offer services similar to those offered by U S WEST, including local
exchange services. U S WEST believes that these competitors have initially
targeted high-volume business customers in densely populated urban areas and
will selectively pursue business in smaller communities. The resulting loss of
local service customers could affect multiple revenue streams and could have a
material adverse effect on U S WEST's operations. Court and state regulatory
commission deliberations on interconnection rates and newly issued FCC rules on
interstate access pricing could also result in significant changes in revenues
received from carriers. The wireless services being introduced by U S WEST will
face competition from the two cellular providers in each of the markets in which
it operates as well as from the other providers of PCS services in such markets.
The high-speed data and Internet access services offered by U S WEST face
competition from LECs, IXCs, internet service providers ("ISPs") and other
providers of data services in U S WEST's markets. Dex competes with various
other providers of directory services, including providers of electronic
directory services.
Technological advancements will also increase competition in the future. New
competitive carriers that are affiliates of cable television companies and power
companies are expected to play a greater role in offering local exchange
services. In addition to local exchange services, competitors are expected to
offer services that will compete with those U S WEST Communications offers and
plans to offer, including video programming and high-speed data and Internet
services.
U S WEST expects to counter the competition by expanding services to include
new retail as well as wholesale markets. Recently introduced service offerings
include PCS, high-speed data and Internet services, and interconnection services
provided for competing providers of local services. Planned future service
offerings include interLATA long-distance services as the regulatory environment
permits, while interconnection services will be expanded. Management believes
that U S WEST's ability to bundle local, long-distance, PCS and other services
will provide a significant opportunity to compete by offering one-stop shopping
with a package of services similar to those that can be offered by IXCs and
CLECs.
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding provides financing to U S WEST and its affiliates through the issuance
of indebtedness guaranteed by U S WEST. Capital Funding has no independent
operations.
S-7
<PAGE>
USE OF PROCEEDS
Capital Funding will apply the proceeds from the sale of the Notes and the
Debentures primarily to the repayment of a portion of its commercial paper
indebtedness, though some of such proceeds may also be used for loans to U S
WEST and affiliates of U S WEST for general corporate purposes. Capital
Funding's commercial paper carries a weighted average interest cost of 5.78%.
CAPITALIZATION OF U S WEST
The following table sets forth, at March 31, 1998, (i) the unaudited
consolidated historical capitalization of U S WEST, (ii) the unaudited combined
pro forma capitalization of U S WEST without adjustment for the sale of the
Notes and the Debentures and (iii) the unaudited combined pro forma
capitalization of U S WEST, as further adjusted to reflect the sale of the Notes
and the Debentures and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds." The historical capitalization presents U S
WEST's financial position as if it were a separate entity for all periods
presented but does not give effect to certain transactions being undertaken in
connection with the Separation, including the refinancing of the $3.9 billion of
Dex Indebtedness. The pro forma capitalization gives effect to all such
transactions. The pro forma capitalization is presented for informational
purposes only and is not necessarily indicative of the future capitalization of
U S WEST. The table should be read in conjunction with the historical and pro
forma financial statements and notes thereto of U S WEST included in the
documents incorporated by reference herein, including U S WEST's Current Report
on Form 8-K dated May 15, 1998. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------------------------
PRO FORMA AS
HISTORICAL PRO FORMA ADJUSTED
----------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt.................................................. $ 924 $ 1,878 $ 1,878
----------- ----------- ------
----------- ----------- ------
Long-term debt................................................... $ 4,931 $ 8,030(2) 4,930
Notes and Debentures offered hereby.............................. -- -- 3,100
Total shareowners' equity (1).................................... 4,450 422 422
----------- ----------- ------
Total capitalization............................................. $ 9,381 $ 8,452 $ 8,452
----------- ----------- ------
----------- ----------- ------
</TABLE>
- ------------------------
(1) U S WEST has 2,000,000,000 shares of Common Stock authorized. Upon
consummation of the Separation on June 12, 1998, there were 485,041,923
shares of Communications Stock issued and outstanding. In the Separation,
one share of U S WEST Common Stock was issued in redemption of each issued
and outstanding share of Communications Stock. In addition, $850 million in
value of shares of U S WEST Common Stock was issued to holders of Media
Stock as the Dex Dividend based on the average price of the Communications
Stock measured over a period of 20 trading days prior to the Separation.
(2) Consists of long-term debt of U S WEST Communications and commercial paper
issued by Capital Funding to refinance the Dex Indebtedness as well as to
fund certain costs and expenses of the Separation. All medium- and long-term
debt securities of Capital Funding which were outstanding prior to the
Separation and guaranteed by Old U S WEST were either repurchased for cash
or assumed by MediaOne Group, Inc. in connection with the Separation.
S-8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
U S WEST SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial information for
U S WEST. This information presents U S WEST 's results of operations and
financial condition as if it were a separate entity for all periods presented
but does not give effect to certain transactions being undertaken in connection
with the Separation, including the refinancing by U S WEST of the Dex
Indebtedness and the issuance of $850 million in value of U S WEST Common Stock
to holders of Media Stock in connection with the Dex Alignment. For financial
information for U S WEST which gives effect to all such transactions, see "-- U
S WEST Unaudited Selected Pro Forma Financial Data." The summary historical
financial data below should be read in conjunction with the financial statements
and notes thereto of U S WEST, included in the Old U S WEST proxy statement
mailed to all shareowners on April 20, 1998. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. The summary historical
financial data at December 31, 1997 and 1996 and for each of the two years ended
December 31, 1997, have been derived from the combined financial statements of U
S WEST, which have been audited by Arthur Andersen LLP, independent public
accountants. The summary historical financial data at December 31, 1995, 1994
and 1993, and for each of the three years ended December 31, 1995, have been
derived from the combined financial statements of U S WEST, which have been
audited by Coopers & Lybrand L.L.P., independent accountants. See "Experts" in
the accompanying Prospectus. The summary historical financial data at March 31,
1998 and 1997 have been derived from the unaudited combined financial statements
of U S WEST, which have been prepared on the same basis as the audited combined
financial statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. Results for interim periods are not necessarily indicative of results
for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OR AS OF
OR AS OF MARCH 31, DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
DOLLARS IN MILLIONS (EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Communications & related services............... $ 2,710 $ 2,587 $ 10,319 $ 10,079 $ 9,484 $ 9,176 $ 8,870
Directory services.............................. 307 287 1,196 1,120 1,058 997 949
Intersegment eliminations....................... (8) (7) (36) (31) (34) (41) (40)
--------- --------- --------- --------- --------- --------- ---------
$ 3,009 $ 2,867 $ 11,479 $ 11,168 $ 10,508 $ 10,132 $ 9,779
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Operating income:(1)
Communications & related services............... $ 670 $ 644 $ 2,210 $ 2,340 $ 2,178 $ 2,118 $ 1,035
Directory services.............................. 145 133 566 472 399 398 358
--------- --------- --------- --------- --------- --------- ---------
$ 815 $ 777 $ 2,776 $ 2,812 $ 2,577 $ 2,516 $ 1,393
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Interest expense.................................. $ 97 $ 103 $ 405 $ 448 $ 429 $ 381 $ 415
Net income (loss)(2).............................. 434 420 1,524 1,535 1,423 1,403 (2,585)
Dividends per common share(3)..................... 0.535 0.535 2.14 2.14 2.14
BALANCE SHEET DATA:
Total assets...................................... 17,851 -- 17,667 17,279 16,960 16,317 15,727
Total debt........................................ 5,855 -- 5,715 6,545 6,782 6,147 5,728
Total equity...................................... 4,450 -- 4,367 4,085 3,657 3,357 2,837
OPERATING DATA:
EBITDA(4)......................................... 1,347 1,313 4,939 4,970 4,644 4,444 4,166
Capital expenditures.............................. 522 409 2,672 2,831 2,770 2,513 2,251
Ratio of earnings to fixed charges(5)............. 6.50 6.10 5.67 5.20 5.01 5.38 2.91
Telephone network access lines in service
(thousands)..................................... 16,193 15,625 16,033 15,424 14,795 14,299 13,803
Billed access minutes of use (millions)
Interstate...................................... 14,362 13,530 55,362 52,039 47,801 43,768 40,594
Intrastate...................................... 2,983 2,785 11,729 10,451 9,504 8,507 7,529
Total employees................................... 52,142 50,525 51,110 51,477 54,552 55,246 56,147
Telephone company employees....................... 44,667 44,435 43,749 45,427 47,934 47,493 49,668
Telephone company employees per ten thousand
access lines.................................... 27.6 28.4 27.3 29.5 32.4 33.2 36.0
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
S-9
<PAGE>
NOTES TO SUMMARY HISTORICAL FINANCIAL DATA
(1) 1997 operating income includes a $225 regulatory charge related primarily to
a rate reduction order in the state of Washington. 1996 operating income
includes the current effects of $24 from adopting Statement of Financial
Accounting Standards ("SFAS") No. 121. 1993 operating income includes a
one-time restructuring charge of $930.
(2) Net income for the first three months of 1997 includes a gain of $11 on the
sales of certain rural telephone exchanges. 1997 net income includes a $152
regulatory charge related primarily to a rate reduction order in the state
of Washington, a gain of $48 on the sales of certain rural telephone
exchanges, a gain of $32 on the sale of U S WEST Communications' investment
in Bell Communications Research, Inc. ("Bellcore") and an extraordinary
charge of $3 for the early extinguishment of debt. 1996 net income includes
a gain of $36 on the sales of certain rural telephone exchanges and the
cumulative and current effects of $34 and $15, respectively, from adopting
SFAS No. 121. 1995 net income includes a gain of $85 on the sales of certain
rural telephone exchanges, an extraordinary charge of $8 for the early
extinguishment of debt and $8 for costs associated with the November 1995
recapitalization. 1994 net income includes a gain of $51 on the sales of
certain rural telephone exchanges. 1993 net income was reduced by $566 for a
restructuring charge and $54 for the cumulative effect on deferred taxes of
the 1993 federally mandated increase in income tax rates. 1993 net income
was also reduced by extraordinary charges of $3,123 for the discontinuance
of SFAS No. 71 and $77 for the early extinguishment of debt.
(3) Dividends per share prior to 1995 are not presented due to the November 1995
recapitalization.
(4) Earnings before interest, taxes, depreciation, amortization, and other
("EBITDA"). EBITDA also excludes gains on asset sales and a restructuring
charge. U S WEST considers EBITDA an important indicator of the operational
strength and performance of its business. EBITDA, however, should not be
considered as an alternative to operating or net income as an indicator of
the performance of U S WEST's businesses or as an alternative to cash flows
from operating activities as a measure of liquidity, in each case determined
in accordance with generally accepted accounting principles.
(5) 1993 ratio includes a one-time restructuring charge of $930. Excluding the
restructuring charge the ratio would have been 4.76.
S-10
<PAGE>
U S WEST UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma statement of operations data of U
S WEST gives effect to the Refinancing (including the refinancing of the Dex
Indebtedness), the issuance of the Dex Dividend to holders of Media Stock in
connection with the Dex Alignment, transfers of certain assets and liabilities
of Old U S WEST to U S WEST and allocations of certain costs and expenses in
connection with the Separation (the "Separation Adjustments") as if such
transactions had been consummated as of the beginning of the periods indicated.
The following unaudited pro forma balance sheet data of U S WEST gives effect to
the Separation Adjustments as if such transactions had been consummated as of
the dates indicated. The unaudited selected pro forma financial data are derived
from, or prepared on a basis consistent with, the unaudited pro forma condensed
combined financial statements of U S WEST and the notes thereto incorporated by
reference in U S WEST's Current Report on Form 8-K dated May 15, 1998,
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
The pro forma financial data included herein are based on available
information and certain assumptions management believes are reasonable and does
not necessarily represent what U S WEST's financial position or results of
operations would have been had the transactions occurred at such dates or to
project U S WEST's financial position or results of operations at or for any
future date or period. In the opinion of management, all adjustments necessary
to present fairly the unaudited pro forma financial information have been made.
The unaudited pro forma financial statements should be read in conjunction with
the historical and pro forma financial statements and the notes thereto of U S
WEST, included in the documents incorporated by reference herein, including U S
WEST's Current Report on Form 8-K dated May 15, 1998. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED OR AS OF
OR AS OF MARCH 31, DECEMBER 31,
-------------------- --------------------
1998 1997 1997 1996
--------- --------- --------- ---------
DOLLARS IN MILLIONS (EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Communications & related services................................... $ 2,710 $ 2,587 $ 10,319 $ 10,079
Directory services.................................................. 307 287 1,196 1,120
Intersegment eliminations........................................... (8) (7) (36) (31)
--------- --------- --------- ---------
$ 3,009 $ 2,867 $ 11,479 $ 11,168
--------- --------- --------- ---------
--------- --------- --------- ---------
Operating income:(1)
Communications & related services................................... $ 670 $ 644 $ 2,210 $ 2,340
Directory services.................................................. 145 133 566 472
--------- --------- --------- ---------
$ 815 $ 777 $ 2,776 $ 2,812
--------- --------- --------- ---------
--------- --------- --------- ---------
Interest expense...................................................... $ 158 $ 164 $ 648 $ 691
Net income (2)........................................................ 396 382 1,374 1,385
Diluted earnings per common share(3).................................. 0.78 0.76 2.73 2.77
Dividends per common share............................................ 0.535 0.535 2.14 2.14
BALANCE SHEET DATA:
Total assets.......................................................... 17,924 -- 17,740 17,352
Total debt............................................................ 9,908 -- 9,768 10,598
Total equity.......................................................... 422 -- 339 57
OPERATING DATA:
EBITDA................................................................ 1,347 1,313 4,939 4,970
Ratio of earnings to fixed charges.................................... 4.37 4.15 3.85 3.63
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
S-11
<PAGE>
NOTES TO UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
(1) 1997 operating income includes a $225 regulatory charge related primarily to
a rate reduction order in the state of Washington. 1996 operating income
includes the current effects of $24 from adopting SFAS No. 121. 1993
operating income includes a one-time restructuring charge of $930.
(2) Net income for the first three months of 1997 includes a gain of $11 on the
sales of certain rural telephone exchanges. 1997 net income includes a $152
regulatory charge related primarily to a rate reduction order in the state
of Washington, a gain of $48 on the sales of certain rural telephone
exchanges, a gain of $32 on the sale of U S WEST Communications' investment
in Bellcore and an extraordinary charge of $3 for the early extinguishment
of debt. 1996 net income includes a gain of $36 on the sales of certain
rural telephone exchanges and the cumulative and current effects of $34 and
$15, respectively, from adopting SFAS No. 121.
(3) 1997 earnings per share includes an extraordinary charge of $3 ($.01 per
share) for the early extinguishment of debt. 1996 earnings per share
includes $34 ($.07 per share) for the cumulative effect from adopting SFAS
No. 121.
S-12
<PAGE>
DESCRIPTION OF NOTES AND DEBENTURES
GENERAL
The 2002 Notes, the 2005 Notes, the 2008 Notes and the Debentures will be
issued as separate series of Debt Securities under an Indenture, dated as of
June 29, 1998, as amended or supplemented from time to time (the "Indenture"),
among U S WEST, Capital Funding and The First National Bank of Chicago, as
trustee (the "Trustee"). The provisions of the Indenture are more fully
described under "Description of Debt Securities and Guarantees" in the
accompanying Prospectus, to which reference is hereby made. Capitalized and
other terms not otherwise defined herein shall have the meanings given to them
in the accompanying Prospectus and the Indenture. As of the date of this
Prospectus Supplement, no Debt Securities have been issued under the Indenture.
NOTES
The 2002 Notes will be limited to $500,000,000 aggregate principal amount,
the 2005 Notes will be limited to $500,000,000 aggregate principal amount and
the 2008 Notes will be limited to $600,000,000 aggregate principal amount. The
Notes are unconditionally guaranteed as to payment of principal and interest by
U S WEST. The Notes are unsecured obligations of Capital Funding and rank
equally with all other unsecured and unsubordinated indebtedness of Capital
Funding. The Guarantees are unsecured obligations of U S WEST and rank equally
with all other unsecured and unsubordinated indebtedness of U S WEST. Reference
is made to the accompanying Prospectus for a detailed summary of additional
provisions of the Notes and the Guarantees.
The 2002 Notes will bear interest at the rate of 6 1/8% per annum, the 2005
Notes will bear interest at the rate of 6 1/4% per annum and the 2008 Notes will
bear interest at the rate of 6 3/8% per annum, in each case from June 29, 1998,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, payable semiannually on January 15 and July 15 of each year,
commencing January 15, 1999, to the Persons in whose names the Notes are
registered at the close of business on the January 1 or July 1, as the case may
be, next preceding such Interest Payment Date. The Notes will be issued in
registered form in denominations of $1,000 and integral multiples thereof.
Interest will be calculated on the basis of a 360-day year of twelve 30-day
months.
The 2002 Notes will mature on July 15, 2002, the 2005 Notes will mature on
July 15, 2005 and the 2008 Notes will mature on July 15, 2008. The Notes will
not have the benefit of any sinking fund.
The Trustee, through its corporate trust office in the Borough of Manhattan
in The City of New York (in such capacity, the "Paying Agent"), will act as
Capital Funding's paying agent with respect to the Notes. Payments of principal
of and interest on the Notes will be made by Capital Funding through the Paying
Agent to DTC. See "--Book-Entry System."
The Notes may be transferred or exchanged without any service charge at the
corporate trust office of the Paying Agent in the Borough of Manhattan in The
City of New York, or at any other office or agency maintained by Capital Funding
for such purpose.
DEBENTURES
The Debentures will be limited to $1,500,000,000 aggregate principal amount.
The Debentures are unconditionally guaranteed as to payment of principal and
interest by U S WEST. The Debentures are unsecured obligations of Capital
Funding and rank equally with all other unsecured and unsubordinated
indebtedness of Capital Funding. The Guarantees are unsecured obligations of U S
WEST and rank equally with all other unsecured and unsubordinated indebtedness
of U S WEST. Reference is made to the accompanying Prospectus for a detailed
summary of additional provisions of the Debentures and the Guarantees.
S-13
<PAGE>
The Debentures will bear interest at the rate of 6 7/8% per annum from June
29, 1998, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable semiannually on January 15 and July 15
of each year, commencing January 15, 1999, to the Persons in whose names the
Debentures are registered at the close of business on the January 1 or July 1,
as the case may be, next preceding such Interest Payment Date. The Debentures
will be issued in registered form in denominations of $1,000 and integral
multiples thereof. Interest will be calculated on the basis of a 360-day year of
twelve 30-day months.
The Debentures will mature on July 15, 2028. The Debentures will not have
the benefit of any sinking fund.
The Paying Agent will act as Capital Funding's paying agent with respect to
the Debentures. Payments of principal of and interest on the Debentures will be
made by Capital Funding through the Paying Agent to DTC. See "--Book-Entry
System."
The Debentures may be transferred or exchanged without any service charge at
the corporate trust office of the Paying Agent in the Borough of Manhattan in
The City of New York, or at any other office or agency maintained by Capital
Funding for such purpose.
OPTIONAL REDEMPTION
Each series of Notes and Debentures will be redeemable at the option of
Capital Funding, in whole at any time or in part from time to time, on at least
30 days but not more than 60 days prior written notice mailed to the registered
holders thereof, at a redemption price equal to the greater of (i) 100% of the
principal amount of the Notes or Debentures (as the case may be) to be redeemed
and (ii) the sum, as determined by the Quotation Agent (as defined herein), of
the present values of the principal amount and the remaining scheduled payments
of interest on the Notes or Debentures (as the case may be) to be redeemed (the
"Remaining Life") in each case discounted from their respective scheduled
payment dates to the redemption date on a semiannual basis (assuming a 360-day
year consisting of 30-day months) at the Treasury Rate (as defined herein) plus
10 basis points in the case of the 2002 Notes, 15 basis points in the case of
the 2005 Notes, 20 basis points in the case of the 2008 Notes and 25 basis
points in the case of the Debentures, plus in either case, accrued interest
thereon to the date of redemption.
If money sufficient to pay the redemption price of and accrued interest on
all of the Notes or Debentures (as the case may be) of a particular series (or
portions thereof) to be redeemed on the redemption date is deposited with the
Trustee or a Paying Agent on or before the redemption date and certain other
conditions are satisfied, then on and after such date, interest will cease to
accrue on such Notes or Debentures, as the case may be (or such portion
thereof), called for redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Remaining
Life that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity with the Remaining Life of the Notes or Debentures, as
the case may be, to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date, the
average of five Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or if the Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by Capital
Funding.
"Reference Treasury Dealer" means each of Merrill Lynch Government
Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities Inc., Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated and their successors;
provided, however, that if any of the foregoing shall cease to be primary U.S.
S-14
<PAGE>
Government securities dealers in New York City (a "Primary Treasury Dealer"),
Capital Funding shall substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual yield to maturity of the Comparable Treasury
Issue, calculated on the third business day preceding such redemption date using
a price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for such redemption
date.
BOOK-ENTRY SYSTEM
DTC will act as securities depositary for the Notes and the Debentures. The
Notes and the Debentures will each be issued only in the form of one or more
fully registered certificates registered in the name of Cede & Co., DTC's
nominee. Except as provided below, owners of beneficial interests in the
certificates for the Notes registered in the name of DTC or its nominee ("Global
Notes") or in the certificates for the Debentures registered in the name of DTC
or its nominee ("Global Debentures") will not be entitled to have either the
Global Notes or the Global Debentures, as the case may be, registered in their
names and will not receive or be entitled to receive physical delivery of either
the Global Notes or the Global Debentures, as the case may be, in definitive
form. Unless and until definitive Notes or Debentures are issued to owners of
beneficial interest in the Global Notes or the Global Debentures, such owners of
beneficial interest will not be recognized as holders of either the Notes or the
Debentures, as the case may be, by Capital Funding, the Trustee or the Paying
Agent. Hence, until such time, owners of beneficial interests in either the
Global Notes or the Global Debentures will only be able to exercise the rights
of Holders indirectly through DTC and its participating organizations (which may
include Morgan Guaranty Trust Company of New York, Brussels office, as operator
of the Euroclear System, and Citibank, N.A., as operator of Cedel Bank, societe
anonyme). Except as set forth below, the certificates may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee to a successor of DTC or a
nominee of such successor.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a Global Note or a Global
Debenture.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "Clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
S-15
<PAGE>
Purchases of Notes or Debentures within DTC's system must be made by or
through Direct Participants, which will receive a credit for the Notes or the
Debentures, as the case may be, on DTC's records. The ownership interest of each
actual purchaser of each Note or Debenture ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased the Notes or the Debentures, as the case may be. Transfers of
ownership interests in the Notes or the Debentures are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Notes or Debentures, except in the event that use of the book-entry
system for the Notes or the Debentures is discontinued.
To facilitate subsequent transfers, all of the Notes and the Debentures
deposited by Participants with DTC are registered in the name of DTC's nominee,
Cede & Co. The deposit of Notes or Debentures with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Notes or the Debentures. DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes or Debentures are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyances of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the Notes and the Debentures is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Notes or Debentures. Under its usual procedures,
DTC would mail an Omnibus Proxy to Capital Funding as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Notes or the
Debentures, as the case may be, are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Payments of principal of and interest on the Notes and the Debentures will
be made to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Paying Agent, the Trustee, Capital Funding or U S WEST, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of Capital Funding, the
Paying Agent or the Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a Global Note or a Global
Debenture will not be entitled to receive physical delivery of Notes or
Debentures, as the case may be. Accordingly, each Beneficial Owner must rely on
the procedures of DTC to exercise any rights under the Notes or the Debentures.
DTC may discontinue providing its services as securities depositary with
respect to the Notes or the Debentures at any time by giving reasonable notice
to Capital Funding or the Paying Agent. Under such circumstances, in the event
that a successor securities depository is not obtained, certificates for the
Notes or the Debentures, as the case may be, are required to be printed and
delivered. Additionally, Capital
S-16
<PAGE>
Funding may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depositary) with respect to the Notes or the
Debentures. In that event, certificates for the Notes or the Debentures, as the
case may be, will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Capital Funding and U S WEST believe to be
reliable, but Capital Funding and U S WEST take no responsibility for the
accuracy thereof.
S-17
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among Capital Funding, U S WEST, and each of the
underwriters named below (the "Underwriters"), Capital Funding has agreed to
sell to each of the Underwriters, and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., J.P. Morgan
Securities Inc., Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated are
acting as representatives (the "Representatives"), has severally agreed to
purchase, the principal amounts of the Notes and the Debentures set forth
opposite its name below. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters will be obligated to purchase all of the Notes and the
Debentures if any are purchased. In the event of default by an Underwriter, the
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER 2002 NOTES 2005 NOTES 2008 NOTES DEBENTURES
- --------------------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................... $96,000,000 $96,000,000 $115,200,000 $ 288,000,000
Goldman, Sachs & Co. .......................................... 96,000,000 96,000,000 115,200,000 288,000,000
J.P. Morgan Securities Inc. ................................... 96,000,000 96,000,000 115,200,000 288,000,000
Lehman Brothers Inc. .......................................... 96,000,000 96,000,000 115,200,000 288,000,000
Morgan Stanley & Co. Incorporated.............................. 96,000,000 96,000,000 115,200,000 288,000,000
BancAmerica Robertson Stephens................................. 2,500,000 2,500,000 3,000,000 7,500,000
ABN AMRO Incorporated.......................................... 2,500,000 2,500,000 3,000,000 7,500,000
BNY Capital Markets, Inc....................................... 2,500,000 2,500,000 3,000,000 7,500,000
Banc One Capital Markets, Inc.................................. 2,500,000 2,500,000 3,000,000 7,500,000
Citicorp Securities, Inc....................................... 2,500,000 2,500,000 3,000,000 7,500,000
Key Capital Markets, Inc....................................... 2,500,000 2,500,000 3,000,000 7,500,000
Commerzbank Capital Markets Corporation........................ 2,500,000 2,500,000 3,000,000 7,500,000
Norwest Investment Services, Inc............................... 2,500,000 2,500,000 3,000,000 7,500,000
----------- ----------- ----------- -------------
Total................................................ $500,000,000 $500,000,000 $600,000,000 $1,500,000,000
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
</TABLE>
The Representatives have advised Capital Funding that they propose initially
to offer the Notes and the Debentures to the public at the public offering
prices set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such prices less a concession not in excess of .35% of the principal
amount of the 2002 Notes, .375% of the principal amount of the 2005 Notes, .4%
of the principal amount of the 2008 Notes, and .5% of the principal amount of
the Debentures. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of .25% of the principal amount of the 2002 Notes, .25%
of the principal amount of the 2005 Notes, .25% of the principal amount of the
2008 Notes, and .25% of the principal amount of the Debentures. After the
initial public offering, the offering prices, concessions and discounts may be
changed.
During a period of 30 days from the date of this Prospectus Supplement,
neither Capital Funding nor U S WEST will, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
any senior debt securities with maturities of more than one year.
The Notes and the Debentures are new issues of securities with no
established trading markets. Capital Funding and U S WEST have been advised by
the Representatives that they intend to make a market in the Notes and the
Debentures but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes or the Debentures.
S-18
<PAGE>
Until the distribution of the Notes and the Debentures is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters to bid for and purchase Notes and Debentures. As an exception to
these rules, the Representatives are permitted to engage in certain transactions
that stabilize the price of the Notes or the Debentures. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Notes or the Debentures.
If the Representatives create a short position in the Notes or the
Debentures in connection with the offering, I.E., if they sell more Notes or
Debentures than are set forth on the cover page of this Prospectus Supplement,
the Representatives may reduce that short position by purchasing Notes or
Debentures in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither Capital Funding nor U S WEST nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes or the
Debentures. In addition, neither Capital Funding nor U S WEST nor any of the
Underwriters makes any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Capital Funding and U S WEST have agreed to indemnify the several
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, U S WEST and its subsidiaries in the ordinary
course of business.
LEGAL MATTERS
Certain legal matters relating to the Notes, the Debentures and the
Guarantees will be passed upon for Capital Funding and U S WEST by Weil, Gotshal
& Manges LLP, New York, New York and by Thomas O. McGimpsey, Corporate Counsel
and Assistant Secretary of U S WEST, and for the Underwriters by Brown & Wood
LLP, New York, New York.
S-19
<PAGE>
PROSPECTUS
[LOGO]
$3,500,000,000
U S WEST CAPITAL FUNDING, INC.
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST, BY
U S WEST, INC.
U S WEST Capital Funding, Inc. ("Capital Funding") from time to time offers
its notes, debentures, or other debt securities (the "Debt Securities"), in one
or more series, up to an aggregate principal amount of $3,500,000,000 (or its
equivalent, based on the applicable exchange rate at the time of offering, in
such foreign currencies, or units of two or more thereof as shall be designated
by Capital Funding). Debt Securities may be issued in registered form without
coupons, bearer form with coupons attached, or in the form of a Global Security.
All Debt Securities will be unconditionally guaranteed as to payment of
principal, premium, if any, and interest by U S WEST, Inc.
When a particular series of Debt Securities is offered, a supplement to this
Prospectus will be delivered (the "Prospectus Supplement") together with this
Prospectus setting forth the terms of such Debt Securities, including, where
applicable, the specific designation, aggregate principal amount, denominations,
form of currency or currencies in which the principal, and premium, if any, and
interest are payable, maturity, rate (which may be fixed or variable) and time
of payment of interest, any terms for redemption or repurchase at the option of
Capital Funding or the holder, any terms for sinking fund payments, the initial
public offering price, the names of, and the principal amounts to be purchased
by, underwriters and the compensation of such underwriters, any listing of the
Debt Securities on a securities exchange, and the other terms in connection with
the offering and sale of such Debt Securities.
If an agent of Capital Funding or a dealer or an underwriter is involved in
the sale of the Debt Securities in respect of which this Prospectus is being
delivered, the agent's commission or dealer's or underwriter's discount will be
set forth in, or may be calculated from, the Prospectus Supplement. The net
proceeds to Capital Funding from such sale will be the purchase price of such
Debt Securities less such commission in the case of an agent, the purchase price
of such Debt Securities in the case of a dealer or the public offering price
less such discount in the case of an underwriter, and less, in each case, the
other attributable issuance expenses. The aggregate net proceeds to Capital
Funding from all the Debt Securities will be the purchase price of the Debt
Securities sold, less the aggregate of agents' commissions and dealers' and
underwriters' discounts and other expenses of issuance and distribution. The net
proceeds to Capital Funding from the sale of the Debt Securities will be set
forth in the Prospectus Supplement. See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is June 24, 1998.
<PAGE>
DESCRIPTION OF SEPARATION
On June 12, 1998, old U S WEST, Inc. (renamed "MediaOne Group, Inc." and
referred to in this Prospectus as "Old U S WEST") consummated a transaction
whereby it was separated into two independent companies (the "Separation"). Old
U S WEST conducted its businesses through two groups, the U S WEST
Communications Group (the "Communications Group") and the U S WEST Media Group
(the "Media Group"). Pursuant to the Separation, Old U S WEST (i) contributed
the businesses of the Communications Group and the domestic directories business
of the Media Group ("Dex") (collectively the "U S WEST Businesses") to USW-C,
Inc. (renamed "U S WEST, Inc." and referred to in this Prospectus as "U S WEST")
and (ii) redeemed each outstanding share of Communications Group Common Stock
("Communications Stock") for one share of Common Stock of U S WEST ("U S WEST
Common Stock") and distributed $850 million in value of U S WEST Common Stock
(the "Dex Dividend") to holders of Media Group Common Stock ("Media Stock") in
connection with the alignment of Dex with U S WEST (the "Dex Alignment"). In
connection with the Separation, U S WEST refinanced approximately $4.4 billion
of Old U S WEST debt, including $3.9 billion of debt (the "Dex Indebtedness") in
connection with the Dex Alignment, through the issuance of short-term
indebtedness. As a result of the Separation, U S WEST became an independent
company conducting the businesses of the Communications Group and Dex, and
MediaOne Group, Inc. continues as an independent company conducting the
businesses of the Media Group other than Dex. The Separation was approved by the
holders of Communications Stock and Media Stock at Old U S WEST's Annual Meeting
held on June 4, 1998. As used herein, references to "U S WEST" refer to the U S
WEST Businesses prior to Separation and to U S WEST after the Separation.
AVAILABLE INFORMATION
U S WEST is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information concerning U S WEST can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, at prescribed rates.
The Commission maintains a Web site at http: //www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including U S WEST. U
S WEST's Common Stock is listed and traded on the New York Stock Exchange (the
"NYSE") and the Pacific Stock Exchange (the "PSE") and such material is
available for inspection at the offices of the NYSE, 20 Broad Street, New York,
New York 10005 and at the offices of the PSE, 115 Sansome Street, 2nd Floor, San
Francisco, California 94104.
U S WEST and Capital Funding have filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933
(the "Securities Act"). This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by U S WEST (and its predecessor Old
U S WEST) with the Commission and are incorporated herein by reference: (i) Old
U S WEST's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended by Form 10-K/A filed April 13, 1998,
2
<PAGE>
(ii) Old U S WEST's Current Reports on Form 8-K dated January 29, 1998, February
17, 1998, March 25, 1998 (as amended by Form 8-K/A filed April 13, 1998), April
17, 1998 and May 5, 1998, (iii) Old U S WEST's Proxy Statement on Schedule 14A
filed with the Commission on April 20, 1998, (iv) U S WEST's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and (v) U S WEST's Current
Reports on Form 8-K dated May 15, 1998, June 3, 1998 and June 17, 1998.
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies and supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
U S WEST and Capital Funding will provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents which are incorporated by reference herein,
other than exhibits to such documents which are not specifically incorporated by
reference therein. Requests should be directed to Investor Relations, U S WEST,
1801 California Street, Denver, Colorado 80202 (telephone number (303)
896-1277).
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
Some of the information presented herein or incorporated by reference
constitutes "forward-looking statements" within the meaning of Private
Securities Litigation Reform Act of 1995. Although U S WEST and Capital Funding
believe that their expectations are based on reasonable assumptions within the
bounds of their knowledge of their businesses and operations, there can be no
assurance that actual results will not differ materially from their
expectations. Factors that could cause actual results to differ from
expectations include: (i) greater than anticipated competition from new entrants
into the local exchange, intraLATA toll, wireless, data and directories markets;
(ii) changes in demand for U S WEST's products and services, including optional
custom calling features; (iii) higher than anticipated employee levels, capital
expenditures and operating expenses (such as costs associated with year 2000
remediation); (iv) the loss of significant customers; (v) pending regulatory
actions in state jurisdictions; (vi) regulatory changes affecting the
telecommunications industry, including changes that could have an impact on the
competitive environment in the local exchange market; (vii) a change in economic
conditions in the various markets served by U S WEST's operations; (viii)
greater than anticipated competitive activity requiring new pricing for
services; (ix) higher than anticipated start-up costs associated with new
business opportunities; (x) delays in U S WEST's ability to begin offering
interLATA long-distance services; and (xi) delays in the development of
anticipated technologies, or the failure of such technologies to perform
according to expectations.
U S WEST, INC.
U S WEST is a diversified communications company providing services
principally to customers in a 14-state mountain and western region of the United
States, which is comprised of the states of Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota,
Utah, Washington and Wyoming. U S WEST has operations in four principal areas:
(i) telecommunications and related services, (ii) wireless services, (iii)
high-speed data and Internet
3
<PAGE>
Services; and (iv) directory services. The major component of U S WEST is U S
WEST Communications, Inc. which provides communications service to more than 25
million residential and business customers in the region. U S WEST has one class
of common stock, par value $.01 per share.
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding provides financing to U S WEST and its affiliates through the issuance
of indebtedness guaranteed by U S WEST. The principal executive offices of
Capital Funding are located at 1801 California Street, Denver, Colorado 80202
(telephone number (303) 672-2700).
USE OF PROCEEDS
Capital Funding will apply the net proceeds from the sale of the Debt
Securities to its general funds to be used for the reduction of short-term and
long-term borrowings and/or loans to U S WEST and affiliates of U S WEST, which
will in turn use the funds for general corporate purposes, including
acquisitions, the refinancing of short-term and long-term borrowings, and for
other business opportunities. The amount and timing of these loans will depend
upon the future growth and financing requirements of U S WEST and its
affiliates.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for U
S WEST for the periods indicated. For the purpose of calculating this ratio,
earnings consist of income before income taxes, extraordinary items and
cumulative effect of change in accounting principle and fixed charges. Fixed
charges include interest on indebtedness and the portion of rentals
representative of the interest factor.
<TABLE>
<CAPTION>
PRO FORMA
--------------------
HISTORICAL
- ---------------------------------------------------- YEAR
THREE MONTHS ENDED THREE MONTHS
ENDED MARCH DECEMBER ENDED MARCH
YEAR ENDED DECEMBER 31, 31, 31, 31,
- ------------------------------------ ------------ ---- ------------
1993(1)(2) 1994(1) 1995(1) 1996(1) 1997(1) 1997(1) 1998(1) 1997(3) 1997(3) 1998(3)
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.91 5.38 5.01 5.20 5.67 6.10 6.50 3.85 4.15 4.37
</TABLE>
- ------------------------------
(1) Historical ratios are based on the combined historical results of U S WEST
and exclude the effects of $3.9 billion of indebtedness (the "Dex
Indebtedness") which will be refinanced by U S WEST in connection with the
Dex Alignment.
(2) 1993 ratio includes a one-time restructuring charge of $930 million.
Excluding the restructuring charge, the ratio would have been 4.76.
(3) Based on the unaudited Pro Forma combined results of U S WEST which gives
effect to the refinancing by U S WEST of $3.9 billion of Dex Indebtedness in
connection with the Dex Alignment. For further information please see U S
WEST's Pro Forma financial statements which have been separately filed under
Form 8-K dated May 15, 1998.
DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
The following description sets forth certain general terms and provisions of
the Debt Securities and Guarantees to which any Prospectus Supplement may
relate. The particular terms and provisions of the series of Debt Securities
offered by a Prospectus Supplement and the extent to which such general terms
and provisions described below may apply thereto, will be described in the
Prospectus Supplement relating to such series of Debt Securities.
The Debt Securities are to be issued under an Indenture ("Indenture"), to be
entered into among U S WEST, Capital Funding, and The First National Bank of
Chicago ("Trustee"). As of the date of this Prospectus, no Debt Securities have
been issued under the Indenture. The following summaries
4
<PAGE>
of certain provisions of the Debt Securities, the Guarantees, and the Indenture
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Debt Securities, the Guarantees,
and the Indenture, including the definitions therein of certain terms. Wherever
particular sections or defined terms of the Indenture are referred to, it is
intended that such sections or defined terms shall be incorporated herein by
reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder and additional debt securities may be issued thereunder up to
the aggregate principal amount which may be authorized from time to time by, or
pursuant to a resolution of, Capital Funding's Board of Directors or by
supplemental indenture. Reference is made to the Prospectus Supplement for the
following terms of the particular series of Debt Securities being offered
hereby; (i) the title of the Debt Securities of the series; (ii) any limit upon
the aggregate principal amount of the Debt Securities of the series; (iii) the
date or dates on which the principal of the Debt Securities of the series will
mature; (iv) the rate or rates (or manner of calculations thereof), if any, at
which the Debt Securities of the series will bear interest, the date or dates
from which any such interest will accrue and on which such interest will be
payable, and, with respect to Debt Securities of the series in registered form,
the record date for the interest payable on any interest payment date; (v) the
place or places where the principal of and interest, if any, on the Debt
Securities of the series will be payable; (vi) any redemption or sinking fund
provisions; (vii) if other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series which will be payable upon
declaration of acceleration of the maturity thereof; (viii) whether the Debt
Securities of the series will be issuable in registered or bearer form or both,
any restrictions applicable to the offer, sale, or delivery of Debt Securities
in bearer form ("bearer Debt Securities"), and whether the terms upon which
bearer Debt Securities will be exchangeable for Debt Securities in registered
form ("registered Debt Securities") and vice versa; (ix) whether and under what
circumstances Capital Funding will pay additional amounts on the Debt Securities
of the series held by a person who is not a U.S. person (as defined below) in
respect of taxes or similar charges withheld or deducted and, if so, whether
Capital Funding will have the option to redeem such Debt Securities rather than
pay such additional amounts; (x) the form or forms of the Debt Securities; (xi)
whether the Debt Securities are issuable as a Global Security and, in such case,
the identity of the Depositary for such series; (xii) whether the Debt
Securities will be denominated or provide for payment in United States dollars
or a foreign currency or units of two or more such foreign currencies; (xiii) if
the amount of payments of or interest on the Debt Securities of the series may
be determined with reference to an index based on coin or currency other than
that in which the Debt Securities are stated to be payable, the manner in which
such amounts shall be determined and (xiv) any additional provisions or other
special terms not inconsistent with the provisions of the Indenture, including
any terms which may be required by or advisable under United States laws or
regulations or advisable in connection with the marketing of Debt Securities of
such series. (Section 2.01 and 2.02.) To the extent not described herein,
principal, premium, if any, and interest will be payable, and the Debt
Securities of a particular series will be transferable, in the manner described
in the Prospectus Supplement relating to such series. Further, all Debt
Securities of any one series shall be substantially identical except as to
denomination and the rate or rates of interest, if any, and maturity and
currency and, except as may otherwise be provided in, or pursuant to, a
resolution of Capital Funding's Board of Directors or a certificate delivered
pursuant to the Indenture or by supplemental indenture (Section 2.02.)
Each series of Debt Securities will constitute unsecured and unsubordinated
indebtedness of Capital Funding, and will rank on a parity with Capital
Funding's other indebtedness, and will have the benefit of the Guarantees
described herein. However, since U S WEST is a holding company, the right of U S
WEST and, hence, the right of creditors of U S WEST (including the holders of
the Debt Securities) to participate in any distribution of the assets of any
subsidiaries of U S WEST, whether
5
<PAGE>
upon liquidation, reorganization, or otherwise, is subject to prior claims of
creditors of the subsidiary, except to the extent that claims of U S WEST itself
as a creditor of a subsidiary may be recognized.
Debt Securities of any series may be issued as registered Debt Securities or
bearer Debt Securities or both as specified in the term of the series. Unless
otherwise indicated in the Prospectus Supplement, Debt Securities will be issued
in denominations of $1,000 and integral multiples thereof, and bearer Debt
Securities will not be offered, sold, resold, or delivered to U.S. persons in
connection with their original issuance. For purposes of this Prospectus, "U.S.
person" means a citizen, national, or resident of the United States, a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust which is subject to United States federal income taxation regardless of
its source of income.
To the extent set forth in the Prospectus Supplement, except in special
circumstances set forth in the Indenture, (i) interest on bearer Debt Securities
will be payable only against presentation and surrender of the coupons for the
interest installments evidenced thereby as they mature; and (ii) original issue
discount (as defined in Section 1273 of the Internal Revenue Code of 1986, as
amended), if any, on bearer Debt Securities shall be paid only against
presentation and surrender of such Debt Securities, in either case at a paying
agency of Capital Funding located outside of the United States and its
possessions. (Section 2.05(c).) Capital Funding will maintain such an agency for
a period of two years after the principal of such bearer Debt Securities has
become due and payable. During any period thereafter for which it is necessary
in order to conform to United States tax law or regulations, Capital Funding
will maintain a paying agent outside the United States and its possessions to
which the bearer Debt Securities or coupons appertaining thereto may be
presented for payment and will provide the necessary funds therefor to such
paying agent upon reasonable notice. (Section 2.04.)
Bearer Debt Securities and the coupons related thereto will be transferable
by delivery. (Section 2.08(e).)
If appropriate, federal income tax consequences applicable to a series of
Debt Securities will be described in the Prospectus Supplement relating thereto.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
fully registered global securities (each a "Global Security") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Unless and until it is
exchanged for Debt Securities in definitive registered form, a Global Security
may not be transferred except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
The specific terms of the depositary arrangements with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. Capital Funding anticipates that the following provisions will
apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit the accounts held with it with the respective principal
amounts of the Debt Securities represented by such Global Security. Such
accounts shall be designated by the underwriters or agents with respect to such
Debt Securities or by Capital Funding if such Debt Securities are offered and
sold directly by Capital Funding. Ownership of beneficial interests in a Global
Security will be limited to persons that have accounts with the Depositary for
such Global Security ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the
6
<PAGE>
Depositary for such Global Security or on the records of participants. The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture governing such Debt Securities.
Principal, premium, if any, and interest payments on Debt Securities
registered in the name of a Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner of the
Global Security representing such Debt Securities. Neither Capital Funding, the
Trustee for such Debt Securities, any Paying Agent nor the Security Registrar
for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Capital Funding expects that the Depositary for a series of Debt Securities
issued in the form of a Global Security, upon receipt of any payment of
principal, premium or interest, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Security for such Debt Securities as shown
on the records of such Depositary. Capital Funding also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
If a Depositary for a series of Debt Securities is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
Capital Funding within 90 days, Capital Funding will issue Debt Securities of
such series in definitive form in exchange for the Global Security representing
such series of Debt Securities. In addition, Capital Funding may at any time and
in its sole discretion determine not to have the Debt Securities of a series
represented by a Global Security and, in such event, will issue Debt Securities
of such series in definitive form in exchange for the Global Security
representing such series of Debt Securities. In either instance, an owner of a
beneficial interest in a Global Security will be entitled to have Debt
Securities of the series represented by such Global Security equal in principal
amount to such beneficial interest registered in its name and will be entitled
to physical delivery of such Debt Securities in definitive form. Debt Securities
of such series so issued in definitive form will be issued in denominations of
$1,000 and integral multiples thereof and will be issued in registered form
only, without coupons.
GUARANTEES
U S WEST will unconditionally guarantee the due and punctual payment of the
principal, premium, if any, and interest on the Debt Securities when and as the
same shall become due and payable, whether at maturity, upon redemption, or
otherwise. (Section 2.16.) The Guarantees will rank equally with all other
unsecured and unsubordinated obligations of U S WEST.
7
<PAGE>
EXCHANGE OF SECURITIES
To the extent permitted by the terms of a series of Debt Securities
authorized to be issued in registered form and bearer form, bearer Debt
Securities may be exchanged for an equal aggregate principal amount of
registered or bearer form Debt Securities of the same series containing
identical terms and provisions and date of maturity in such authorized
denominations as may be requested upon surrender of the bearer Debt Securities
with all unpaid coupons relating thereto, at an agency of Capital Funding
maintained for such purpose and upon fulfillment of all other requirements of
such agent. (Section 2.08(b).) As of the date of this Prospectus, United States
Treasury regulations do not permit exchanges of registered Debt Securities for
bearer Debt Securities and, unless such regulations are modified, the terms of a
series of Debt Securities will not permit registered Debt Securities to be
exchanged for bearer Debt Securities.
LIENS ON ASSETS
If at any time, Capital Funding mortgages, pledges, or otherwise subjects to
any lien the whole or any part of any property or assets now owned or hereafter
acquired by it, except as hereinafter provided, Capital Funding will secure the
outstanding Debt Securities, and any other obligations of Capital Funding which
may then be outstanding and entitled to the benefit of a covenant similar in
effect to this covenant, equally and ratably with the indebtedness or
obligations secured by such mortgage, pledge, or lien, for as long as any such
indebtedness or obligation is so secured. The foregoing covenant does not apply
to the creation, extension, renewal, or refunding of mortgages or liens created
or existing at the time property is acquired, created within 180 days
thereafter, or created for the purpose of securing the cost of construction and
improvement of property, or to the making of any deposit or pledge to secure
public or statutory obligations or with any governmental agency at any time
required by law in order to qualify Capital Funding to conduct its business or
any part thereof in order to entitle it to maintain self-insurance or to obtain
the benefits of any law relating to workers' compensation, unemployment
insurance, old age pensions or other social security, or with any court, board,
commission, or governmental agency as security incident to the proper conduct of
any proceeding before it. Nothing contained in the Indenture prevents any entity
other than Capital Funding from mortgaging, pledging, or subjecting to any lien
any of its property or assets, whether or not acquired from Capital Funding or U
S WEST. (Section 4.03.)
AMENDMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
by Capital Funding, U S WEST, and the Trustee with the consent of the holders of
a majority in principal amount of the outstanding Debt Securities of each series
affected by the amendment or supplement (with each series voting as a class), or
compliance with any provision may be waived with the consent of holders of a
majority in principal amount of the outstanding Debt Securities of each series
affected by such waiver (with each series voting as a class). However, without
the consent of each Debt Securityholder affected, an amendment or waiver may not
(i) reduce the amount of Debt Securities whose holders must consent to an
amendment or waiver; (ii) change the rate of or change the time for payment of
interest on any Debt Security; (iii) change the principal of or change the fixed
maturity of any Debt Security; (iv) waive a default in the payment of the
principal of or interest on any Debt Security; (v) make any Debt Security
payable in money other than that stated in the Debt Security; or (vi) make any
change to Section 6.04 (Waiver of Existing Defaults), Section 6.07 (Rights of
Holders to Receive Payment) or items (i) through (vi) listed in this sentence.
(Section 9.02.) The Indenture may be amended or supplemented without the consent
of any Debt Securityholder (i) to cure any ambiguity, defect, or inconsistency
in the Indenture, the Debt Securities of any series or the Guarantees; (ii) to
provide for the assumption of all the obligations of Capital Funding or U S WEST
under the Debt Securities, any coupons related thereto, the Guarantees, and the
Indenture by any corporation in
8
<PAGE>
connection with a merger, consolidation, transfer, or lease of Capital Funding's
or U S WEST's property and assets substantially as an entirety, as provided for
in the Indenture; (iii) to provide for uncertificated Debt Securities in
addition to or in place of certificated Debt Securities; (iv) to add to the
covenants of Capital Funding and U S WEST for the benefit of the holders of all
or any series of Debt Securities (and if such covenants are to be for the
benefit of less than all series of Debt Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power conferred upon Capital Funding in the Indenture;
(v) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debt Securities, as set forth in the Indenture;
(vi) to secure the Debt Securities pursuant to Section 4.03. of the Indenture;
(vii) to make any change that does not adversely affect the rights of any Debt
Securityholder; (viii) to provide for the issuance of and establish the form and
terms and conditions of a series of Debt Securities or the Guarantees endorsed
thereon or to establish the form of any certifications required to be furnished
pursuant to the terms of the Indenture or any series of Debt Securities; or (ix)
to add to the rights of Debt Securityholders. (Section 9.01.)
MERGER
Capital Funding or U S WEST may consolidate with or merge into, or transfer
or lease its property and assets substantially as an entirety, to another person
if that person is a corporation and assumes all the obligations, as the case may
be, of Capital Funding, under the Debt Securities, and any coupons related
thereto and the Indenture, or of U S WEST, under the Guarantees and the
Indenture, and if, after giving effect to such transaction, a Default or Event
of Default would not occur or be continuing. Thereafter, all such obligations of
Capital Funding or U S WEST, as the case may be, shall terminate. (Section 5.01.
and 5.02.)
The general provisions of the Indenture do not afford holders of the Debt
Securities protection in the event of a highly-leveraged transaction,
reorganization, merger or similar transaction involving U S WEST or Capital
Funding that may adversely affect holders of the Debt Securities.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities: (i) default in the payment of
interest on any Debt Security of each series for 90 days; (ii) default in the
payment of the principal of any Debt Security of such series; (iii) failure by
Capital Funding or U S WEST for 90 days after notice to it to comply with any of
its other agreements in the Debt Securities of such series, in the Indenture, in
the Guarantees, or in any supplemental indenture; and (iv) certain events of
bankruptcy or insolvency of Capital Funding or the Guarantor. (Section 6.01.) If
an Event of Default occurs with respect to the Debt Securities of any series and
is continuing, the Trustee or the holders of at least 25% in principal amount of
all of the outstanding Debt Securities of that series may declare the principal
(or, if the Debt Securities of that series are original issue discount Debt
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Debt Securities of that series to be due and
payable. Upon such declaration, such principal (or, in the case of original
issue discount Debt Securities, such specified amount) shall be due and payable
immediately. (Section 6.02.)
Securityholders may not enforce the Indenture, the Debt Securities, or the
Guarantees, except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Debt
Securities. (Section 7.01.) Subject to certain limitations, holders of a
majority in principal amount of the Debt Securities of each series affected
(with each series voting as a class) may direct the Trustee in its exercise of
any trust power. (Section 6.05.) The Trustee may withhold from Debt
Securityholders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. (Section 7.05.)
9
<PAGE>
CONCERNING THE TRUSTEE
U S WEST and certain of its affiliates, including Capital Funding, maintain
banking relationships in the ordinary course of business with the Trustee. In
addition, the Trustee and certain of its affiliates serve as trustee,
authenticating agent, or paying agent with respect to certain debt securities of
U S WEST and its affiliates.
PLAN OF DISTRIBUTION
GENERAL
Capital Funding may sell the Debt Securities being offered hereby: (i)
directly to purchasers, (ii) through agents, (iii) through underwriters, (iv)
through dealers, or (v) through a combination of any such methods of sale.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions either (i) at a fixed price or prices, which may be
changed; (ii) at market prices prevailing at the time of sale; (iii) at prices
related to such prevailing market prices; or (iv) at negotiated prices.
Offers to purchase Debt Securities may be solicited directly by Capital
Funding or by agents designated by Capital Funding from time to time. Any such
agent, which may be deemed to be an underwriter, as that term is defined in the
Securities Act, involved in the offer or sale of the Debt Securities in respect
of which this Prospectus is delivered will be named, and any commissions payable
by Capital Funding to such agent will be set forth, in the Prospectus Supplement
or the Pricing Supplement. Unless otherwise indicated in the Prospectus
Supplement or the Pricing Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. Agents may be customers of,
engage in transactions with, or perform services for, Capital Funding in the
ordinary course of business.
If an underwriter or underwriters are utilized in the sale, Capital Funding
and U S WEST will execute an underwriting agreement with such underwriters at
the time of sale to them and the names of the underwriters and the terms of the
transactions will be set forth in the Prospectus Supplement, which will be used
by the underwriters to make resales of the Debt Securities.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, Capital Funding will sell such Debt
Securities to the dealer, as principal. The dealer may then resell such Debt
Securities to the public at varying prices to be determined by each dealer at
the time of resale.
Underwriters, dealers, agents, and other persons may be entitled, under
agreements which may be entered into with Capital Funding and U S WEST, to
indemnification against, or contribution with respect to, certain civil
liabilities, including liabilities under the Securities Act.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, Capital Funding will authorize
dealers or other persons acting as Capital Funding's agents to solicit offers by
certain institutions to purchase Debt Securities from Capital Funding pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and others, but in all cases, such institutions must be
approved by Capital Funding. The obligations of any purchaser under any such
contract will not be subject to any conditions except that (a) the purchaser of
the Debt Securities shall not at the time of delivery be prohibited under the
laws of the jurisdiction to which such purchaser is subject, and (b) if the Debt
Securities are also being sold to underwriters, Capital Funding shall have sold
to such underwriters the Debt Securities not sold for
10
<PAGE>
delayed delivery. The dealers and such other persons will not have any
responsibility in respect of the validity or performance of such contracts.
EXPERTS
The audited combined financial statements and combined financial statement
schedule of U S WEST and the audited consolidated financial statements and the
Supplementary Selected Proportionate Results of Operations of Old U S WEST for
the years ended December 31, 1997 and 1996 included in Old U S WEST's proxy
statement on Schedule 14A (the "Proxy Statement"), filed April 20, 1998, and the
audited consolidated financial statements, Supplementary Selected Proportionate
Results of Operations and financial statement schedule of Old U S WEST for the
years ended December 31, 1997 and 1996 included in Old U S WEST's Annual Report
on Form 10-K, as amended by Form 10-K/A filed April 13, 1998, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of Old U S WEST for the year ended
December 31, 1995 included in the Proxy Statement filed April 20, 1998, and the
consolidated financial statements and consolidated financial statement schedule
of Old U S WEST for the year ended December 31, 1995 included in Old U S WEST's
Annual Report on Form 10-K for the year ended December 31, 1997, as amended by
Form 10-K/A filed April 13, 1998, have been incorporated herein by reference in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
combined financial statements and combined financial statement schedule of U S
WEST for the year ended December 31, 1995 included in the Proxy Statement filed
April 20, 1998 have been incorporated herein by reference in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL OPINIONS
Certain legal matters relating to the Debt Securities and the Guarantees to
be offered hereby will be passed upon for Capital Funding and U S WEST by Thomas
O. McGimpsey, Corporate Counsel and Assistant Secretary of U S WEST.
11
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY U S WEST, CAPITAL FUNDING OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF U S WEST OR CAPITAL
FUNDING SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
U S WEST, Inc. ................................ S-3
U S WEST Capital Funding, Inc. ................ S-7
Use of Proceeds................................ S-8
Capitalization of U S WEST..................... S-8
Summary Historical and Pro Forma Financial
Data......................................... S-9
Description of Notes and Debentures............ S-13
Underwriting................................... S-18
Legal Matters.................................. S-19
PROSPECTUS
Description of Separation...................... 2
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Forward-Looking Information May Prove
Inaccurate................................... 3
U S WEST, Inc. ................................ 3
U S WEST Capital Funding, Inc. ................ 4
Use of Proceeds................................ 4
Ratio of Earnings to Fixed Charges............. 4
Description of Debt Securities and
Guarantees................................... 4
Plan of Distribution........................... 10
Experts........................................ 11
Legal Opinions................................. 11
</TABLE>
$3,100,000,000
[LOGO]
U S WEST
CAPITAL FUNDING, INC.
$500,000,000
6 1/8% NOTES DUE JULY 15, 2002
$500,000,000
6 1/4% NOTES DUE JULY 15, 2005
$600,000,000
6 3/8% NOTES DUE JULY 15, 2008
$1,500,000,000
6 7/8% DEBENTURES DUE JULY 15, 2028
UNCONDITIONALLY GUARANTEED
AS TO PAYMENT OF PRINCIPAL
AND INTEREST BY
U S WEST, INC.
---------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
LEHMAN BROTHERS
MORGANSTANLEY DEAN WITTER
JUNE 24, 1998
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